It is easy to get carried away because dreams of getting the automobile you want affect judgment. Available credit allows you to live the dreams earlier than you can buy it outright. However, you have to remember that you will have to pay back the amount borrowed with interest + charges.
This will reduce the monthly available spend until it is paid off and probably increase car insurance costs a bit. The lender will want to make sure that the vehicle is insured properly. This would mean that you will need to buy comprehensive and collision coverage and gap car insurance. In addition, you cannot usually set deductibles over $500.
Use this calculator to estimate monthly automobile loan payments. Enter the amount, interest rate and term and click “calculate”. This will help you to see how much you can spend for a new or used auto.
What to Watch out when Deciding on a Car Loan?
Generally, it is not how much you make that determines how you build wealth but it is how you spend. People with modest income can amass a small fortune over time when people who earn three or four times more can end up in uncontrollable debt. Keeping this in mind, here are some of the tips to help you make the right decision;
- It is not a decision that should be taken in a hurry or lightly. You should get quotes in writing and take home to read and think carefully. Remember that it can wait for another day.
- If you are not confident that you can pay it back in time you should think twice. Last thing you want is to get into debt trouble and ruin credit score. You may want to consider buying a cheaper automobile or postpone the purchase just a little longer.
- If you have bad credit history you may not be able to borrow at decent rates and terms. If you can wait a little you can try to improve the score and apply again.
- You should include cost of vehicle ownership in affordability calculations. Auto repairs, services, parking, fuel and insurance cost money. Furthermore, you should keep some emergency money in the bank for unexpected repairs especially when you are getting a used car. Alternatively, you should look for cars that come with warranty.
- Check the terms and conditions on any financing offer received. Find out about additional fees and requirements. Check if there is early settlement penalty and how much. Some people like to pay it off early partially or in full to reduce (or avoid) monthly installments.
- Be careful with the extra products agents or dealers love to sell. Usually, you don’t have to have products like “payment protection”, if you don’t want. They aren’t cheap.
- Try to avoid the ones that require co-signing. Asking someone else to be a guarantor is as difficult as asking them to lend you the money.
- Make sure the car is insured properly, including gap and remain insured throughout. If it is totalled in an accident, you are still responsible for the outstanding balance and monthly payments.
- Remember that you don’t have to buy car insurance from the dealer or lender. They are unlikely to have good rates. It is better to use a comparison site to find the best coverage and premium.
- It doesn’t mean that you cannot negotiate the price of the automobile, just because you aren’t putting cash on the table. It doesn’t matter how because they get it the same either way. Actually some dealers prefer financed sales since they get commissions and kickbacks from the lender. So, bargain hard before you agree on a price.
What Are Your Borrowing Options?
Knowing that a dealer can arrange the financing for you and you qualify can appear to simplify things. However, other lenders would be happy to provide what you need and at much better terms as long as you have good score and stable income. Here are some of the options that may be available to you.
- Most vehicle dealers can arrange it and some may offer good terms. This would certainly reduce admin and speed the process. There is no harm in getting quotes from several of them. You should also talk to a few specialist auto lenders and compare quotes. This will help you avoid markups. Some of them are just happy to sell a car using a credit arrangement and others look at ways of making more money from these side products.
- Most people with good score and built up history with their bank would be able to get a personal loan to be used for whatever they like. These can be arranged for a five-year term and the interest rates are likely to be lower than anyone else.
- Credit cards offer fantastic deals these days. You may be able to get about 18 months interest free period for balance transfers. There will most likely be arrangement fees but avoid the high card interests in that period. The problem with this arrangement is that monthly interest will be significantly higher at the end of the zero interest period. Credit cards can be a great solution if you think you can settle it in a short time.
- The cheapest option would be to borrow from family, friends or get an employer advance. But, many people wouldn’t be willing to ask them for obvious reason and especially for the fear of getting rejected. Relations will be strained if you don’t return it at the time promised, too.
- There are other ways of raising money for a new vehicle. For example, homeowners can take out home equity by refinancing their home mortgage.
- Another option is leasing an automobile instead of purchasing. In many cases, the value of a car fall faster than you can clear the loan that you are not left with much equity at the end anyway.
- At times, auto manufacturers offer new purchase credits and they may be attractive. However, they are hard to come by and may not be available for the brand you want.
- Least popular option is to rely on sharks and payday loan providers. They are not long-term debt solutions. You can quickly fall into a trap of keep rolling them over and over until you are totally cornered. You must resist the temptations and stay away from them.
- Car title or title pawn loans are another borrowing option you should stay away. First of all, their rates and/or fees are extortionately higher. Secondly, they give a lot less than value of the vehicle. Thirdly, their limit is only few hundred dollars. And most importantly, you can lose the automobile if you cannot keep up which is usually due in a month or so.
- Automobile title, payday or similar short term solutions are not suitable for buying a car and shouldn’t be seen same as auto loans, which are taken for the purpose of vehicle purchase.
If you plan carefully you can enjoy a new car sooner. Find out as much as you can, learn about the monthly cost and interest charges and check all the options attentively. The idea is to avoid getting into any debt troubles. If you can manage to find a good finance you can enjoy a nice automobile at a reasonable cost. You should also spend a little time to find the ideal car and negotiate the best price.